S. Africa Braces For Economic Aftershock

September 08, 1985|By Ray Moseley, Chicago Tribune.

JOHANNESBURG, SOUTH AFRICA — South Africa, plunged this week into an unprecedented economic crisis, will now have to bite the bullet on political reform or drift deeper into crisis, leading economists here say.

Some said the outcome could be a ``siege economy`` in which South Africa is forced to impose harsh economic controls. That would undo all recent efforts to liberalize the economy.

But they said this seemed now to be only an outside possibility.

The economic crisis came to a head last Sunday when the government was forced to announce a four-month moratorium on its $12 billion short-term foreign debt repayment.

Economists said this demonstrated the degree to which the country`s economic health is intertwined with political unrest by blacks demanding an end to apartheid.

The debt moratorium was triggered by the fact that leading U.S. banks see South Africa as a growing political risk and refuse to give the country more time to pay off debts falling due by Dec. 31.

The moratorium, an unprecedented action for an industrial country, sent shock waves through local banking and business communities, already bitter over President P.W. Botha`s failure last month to announce political reform.

The respected magazine Financial Mail, usually a good barometer of business thinking, reacted by calling on Botha to resign. ``Based on his political and economic record of the past year . . . there is only one conclusion,`` it said. ``The man is hopelessly out of his depth and should, forthwith, go into a well-earned retirement.``

Some economists and political observers are particularly disturbed because they see little prospect that the government will undertake the political reforms needed to restore economic confidence.

Nico Czypionka, chief economist for Standard Bank, noted that Botha`s National Party will face five by-elections near the end of October, where it will be challenged by the Conservative Party, a rigid supporter of apartheid. ``The government is unlikely to do anything before then that will alienate right-wing voters,`` he said.

Radical black leaders, he said, also are unlikely to respond soon to government offers to negotiate. He said they will await the outcome of moves in the U.S. to impose sanctions against South Africa.

Jeff Opland of the South Africa Foundation, a business-finance organization that works for political change, said: ``If the economy is crippled, the unrest will continue and there will be more pressure for reform. But the kind of limited reforms the government is talking about will only increase the unrest.``

The economic crisis began to unfold last month when Chase Manhattan Bank of New York decided it could no longer extend credit lines to South Africa because of the risks arising from black political unrest. Other banks followed suit, and the sudden disappearance of foreign credit lines created an extraordinary demand for dollars on the local foreign exchange market as foreign investors sought to take out their money.

This in turn pushed the South African rand down from 53 cents in mid-July to a record low of just under 35 cents on Aug. 27.

At that point the government shut down its foreign exchange and stock markets for five days. On Sunday, as the markets were about to reopen, the government announced its repayment moratorium.

Economists say that, although South Africa is in a recession, there is a great deal of underlying strength in the economy; the collapse of the rand was triggered by the political crisis, not economic weakness.

South Africa is expected to have a healthy balance of payment surplus of $2.5 billion at the end of the year, but it had to impose the debt moratorium because it does not have enough ready cash to meet the $12 billion in short-term debts coming due.

Normally foreign banks would ``roll over`` much of that debt by negotiating new terms that would give South Africa additional time to pay it off. But with political pressures mounting in the U.S. for sanctions against South Africa, some banks were unwilling to take an action that many people would interpret as bailing out apartheid.

During the next four months, South Africa will have to negotiate with its foreign lenders new financial conditions for an orderly payment of its debts. But Czypionka said it would be ``difficult if not impossible`` for the government to arrange new credit ``unless there is a change in political perception of South Africa.``

South Africa`s current recession dates back more than a year and is mainly a result of a weak price for gold, its main export, and several years of drought. It had been expected to end 1985 with zero growth in gross domestic product, then bounce back next year with a growth rate of 4.5 to 5 percent.

But Czypionka said that, because of the current crisis, GDP this year would decline by 1 percent and grow only by about 3.5 percent in 1985--an unimpressive performance by South African standards.

He said unemployment, already high and especially so among blacks, would rise and inflation--already at 16 percent--would go up because of the huge increases in import prices that would result from a weakened rand.